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The Evolution Of Money

The Conspiracy Against Our Financial Intelligence

An excerpt from Rich Dad's Conspiracy Of The Rich by Robert Kiyosaki.

Money evolved as human society grew more sophisticated and required a more sophisticated means of transacting business.

The following section describes in very simple terms the evolutionary stages of money--how it evolved from real money to magic money.

1. Barter: One of the first monetary systems was barter. Barter is simply trading a product or a service for other products and services. For example, if a farmer had a chicken and needed shoes, the farmer could trade chickens for shoes. The obvious problem with barter is that it is slow, tedious, and time-consuming. It is hard to measure relative values. For example, what if the cobbler did not want a chicken? Or if he did, how many chickens were his shoes really worth? A faster more efficient means of exchange was needed, so money evolved.

On a side note, however, if the economy continues to slide downward and money remains tight, you will see barter increase. One good thing about barter is that it is hard for the government to tax barter transactions. The tax department does not accept chickens.

2. Commodities: To speed up the process of exchange, groups of people came to agree on tangible items that represented value. Seashells were some of the first forms of commodity money. So were stones, colored gems, beads, cattle, goats, gold, and silver. Rather than trade chickens for the shoes, the chicken farmer might simply give the cobbler six colored gems for the shoes. The use of commodities sped up the process of exchange. more business could be done in less time.

Today, gold and silver remain the commodities that are internationally accepted as money. This is the lesson I learned in Vietnam. Paper money was national, but gold was international, accepted as money even behind enemy lines.

3. Receipt money: To keep precious metals and gems safe, wealthy people would turn their gold, silver, and gems over for safekeeping to people they trusted. That person would then issue the wealthy person a receipt for his or her precious metals and gems. This was the start of banking.

Receipt money was one of the first financial derivatives. Again, the word derivative means "derived from something else"--just as orange juice is derived from an orange and an egg is derived from a chicken. As money evolved from a tangible item of value into a derivative of value, a receipt, the speed of business increased.

In ancient times, when a merchant traveled across the desert from one market to the next, he would not carry gold or silver for fear of being robbed along the way. Instead, he carried with him a receipt for gold, silver, or gems in storage. The receipt was a derivative of valuables he owned and held in storage. If he purchased products at his faraway destination, he would then pay for his products with the receipt--a derivative of tangible value.

The seller would then take the receipt and deposit it in his bank. Rather than transfer gold, silver, and gems back across the desert to the other bank, the two bankers in the two cities would simply balance or reconcile the trading accounts between buyer and seller with debits and credits against receipts. This was the start of the modern-day banking and monetary system. Once again, money evolved and the speed of business increased. Today, modern forms of receipt money are known as checks, bank drafts, wire transfers, and debit cards. The core business of banking was best described by the third Lord Rothschild as "facilitating the movement of money from point A, where it is, to point B, where it is needed."

4. Fractional reserve receipt money: As wealth increased through trade, bankers' vaults became filled with precious commodities such as gold, silver and gems. Bankers soon realized that their customers had little use for the gold, silver, and gems themselves. Receipts were much more convenient for transacting business. Receipts were much lighter, safer, and easier to carry. To make more money, bankers transitioned from storing wealth to lending wealth. When a customer came in wanting to borrow money, the banker simply issued another receipt with interest. In other words, bankers realized that they did not need their own money to make money. Bankers began effectively printing money.

With more money in circulation, people felt richer. There was no problem with this expanded money supply as long as everyone didn't want his or her gold, silver, or gems back at the same time. In modern terms, economists would say, "The economy grew because the money supply expanded."

5. Fiat money: When President Nixon severed the U.S. dollar from the gold standard in 1971, the United States no longer needed gold, silver, or gems, or anything else in its vaults to create money.

Technically, prior to 1971, the U.S. dollar was a derivative of gold. After 1971, the U.S. dollar became a derivative of debt. Severing the dollar from gold was bank robbery of ungodly proportions.

Fiat money is simply money backed by government's good and credit. If anyone messes with the government and central bank's monopoly on money, the government has the power to put that group or person in jail for fraud and counterfeiting. Fiat money means all bills payable to the government, such as taxes, must be paid in that nation's currency. You cannot pay your taxes with chickens.

For a more detailed look at the origins of money, how money is controlled and distributed by the government, and how you are affected by the way money is manipulated by the rich and powerful, read more from the book Rich Dad's Conspiracy of The Rich by Robert T. Kiyosaki.

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